Inflation falls to 4.05% on lower food prices

Lower prices of essential food items, particularly vegetables and fruits, pulled down inflation to a one-and-half-month low of 4.05 per cent for the week ended August 4, compared to 4.45 per cent in the previous week.

On year-to-year basis, wholesale prices-based inflation declined by over one per cent as it had stood at 5.08 per cent during the corresponding period of the previous fiscal.

Inflation was hovering between 4-4.50 per cent for the past two months, with the lowest figure at 4.03 per cent during the week ended June 16.

The inflation figures have been released more than a month after the RBI raised CRR by 0.5 per cent to 7 per cent, but refrained from hiking other key rates in view of low inflation.

However, inflation has to be watched over a longer duration for any possible reduction in interest rates, which is also unlikely in view of excess liquidity in the system as well as inflationary expectations pointed by the Reserve Bank, analysts said.

According to economic think-tank NCAER, hardening crude oil and metal prices may push up inflation to 5.11 per cent for the current fiscal.
"The role of high economic growth (9.4 per cent in the last fiscal) exerting pressure on prices also needs to be kept in mind," the report said, adding that the overall setting for the fiscal is one of high growth and high rate of inflation.